CHAPTER I

THE EVOLUTION OF SECURITIES

The Two Main Sources of Securities.—The many indispensable
 services performed for American business and society
by the New York Stock Exchange cannot be adequately explained
 until the real nature of the securities which find their
market on its floor is first understood.
Securities, in the Stock Exchange meaning of the term,
may be broadly classified as either governmental or corporate,
according to whether they are created by public and political,
or private business organizations. In consequence, a brief preliminary
 sketch is called for here of the development of government
 financing on the one hand, and of the origin and present
economic significance of the modern stock corporation on the
other. Inasmuch as political stability has always been a necessary
 prerequisite to the higher organization and expression of
business enterprise, it is only natural that as a rule the extensive
 issue of government securities should have occurred the
earlier in point of historical evolution. To this topic of governmental
 financing by means of security issues, then, we should
first give our attention.

Need of Government Financing.—The administrators of
governmental organizations, which in most instances are not
designed to be run for a profit, must in the absence of earnings
necessarily look to the levying of taxes upon the governed as
their normal source of financial support.
From the financial and economic standpoint the ideal and
perfect government—which has never yet in human history
been actually realized, and probably never will be—would be
nne whose income from taxation exactly equaled its expendi-